Wednesday, September 17, 2008

Of Foxes And Hen Houses

You'd think from things John McCain has said recently that he's now ready to take the economy seriously:

Senator John McCain (R-Ariz.), a longtime critic of excessive government intervention, vowed on Sept. 16 to "put an end…to running Wall Street like a casino." At an Orlando rally Sept. 16, McCain called for a high-level commission to investigate the securities industry, and for ending "multimillion-dollar payouts to CEOs that have broken the public trust."

Is anyone taking this seriously? I sure hope not. It's McCain's sort of laissez faire philosophy that got us into this mess. In an interview with Keith Olbermann Monday, Princeton University economist Paul Krugman remarked on the likelihood of McCain being the economy's savior:

OLBERMANN: The senator and the Republican campaign obviously selling themselves throughout the campaign as a break from the Bush administration on the subject of the economy and this sub-subject gigantic, disastrous black holes opening up in the middle of the economy. Is McCain actually a difference from Bush?

KRUGMAN: No, if he had said, at any point, look, you know, we need some regulation, we need some policing, if there was—I‘ve actually been trying to see if I can come up with anyone sort of on the Republican side who has said anything, who said anything about the housing bubble, who warned about subprime. You know, I can‘t see it. The fact of the matter is he‘s—and you know, what he says is, well, we‘re going to clean up Washington, and then I‘ll clean the markets. I don‘t understand.

Of course, the people Krugman refers to include John McCain. In short, not bloody likely. Here's what Phil Gramm, McCain's principle advisor on economic matters, did as a Senator:

In June 2000, Senator Gramm co-sponsored the Commodity Futures Modernization Act, a measure aimed at deregulating certain kinds of futures trading, but not energy futures. That bill never made it to the floor, and thus quietly died. Six months later, on December 15, Gramm curiously turned up as co-sponsor of a bill with the same name, the Commodity Futures Modernization Act, which did deregulate energy futures and which, without undergoing the usual committee hearings and preliminary votes, was immediately attached as a rider to an 11,000-page appropriations bill. It passed and was signed into law by President Bill Clinton six days later. Few lawmakers had likely perused the rider carefully, if they even knew it was there. And at any rate, Enron had given to the campaigns of over 200 legislators.

In short, he helped set up the conditions that Enron could exploit to screw both its customers and its stockholders.

Gramm set up many of the financial conditions we're facing now:

Gramm's long been a handmaiden to Big Finance. In the 1990s, as chairman of the Senate banking committee, he routinely turned down Securities and Exchange Commission chairman Arthur Levitt's requests for more money to police Wall Street; during this period, the sec's workload shot up 80 percent, but its staff grew only 20 percent. Gramm also opposed an sec rule that would have prohibited accounting firms from getting too close to the companies they audited—at one point, according to Levitt's memoir, he warned the sec chairman that if the commission adopted the rule, its funding would be cut. And in 1999, Gramm pushed through a historic banking deregulation bill that decimated Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms—setting off a wave of merger mania.

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

“A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.”

Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.

Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.

Not only did Gramm screw consumers and the economy, he even managed to fuck up the company he worked for. What's more, he was paid handsomely to do so. While he wasn't a CEO, Gramm is just the sort of person McCain was railing about in the lead quote of this article.

The Politico article I just quoted, which was written in March, is well worth a read if you want to know everything a voter ought to know about Phil Gramm. It's a sobering read. This is the guy McCain trusts to run the economy. Paul Krugman put it best, in a quote that's been widely cited around the Net:

KRUGMAN: Yes. I mean, if you‘re going to ask who is responsible for the, you know, which people in official capacity would bear the most responsibility for getting us into this mess it would be, number one, Alan Greenspan, and then, number two, Phil Gramm. He‘s at the core of this. I mean, it‘s—and by the way, whatever they may say officially, everybody knows that if McCain becomes president, Phil Gramm is, the odds [are] in favor (ph) for him to be the treasury secretary.

OLBERMANN: What would that do to the American economy, do you think?

KRUGMAN: Oh, boy. Well, you know, under current management, Hank Paulson, I have some sympathy for, the (INAUDIBLE) works for the czar, he can only do so much given the guy he works for. But boy, Phil Gramm, you know, Ben Bernanke, I think Hank Paulson understand that we could manage to have another Great Depression if we work at it hard enough. I think Phil Gramm might be just the guy to do it.

Barack Obama summed up his differences with McCain on the economy thus:

"This March, in the wake of the Bear Stearns bailout, I called for a new, 21st century regulatory framework to restore accountability, transparency, and trust in our financial markets. Just a few weeks earlier, Senator McCain made it clear where he stands: 'I'm always for less regulation,' he said, and referred to himself as 'fundamentally a deregulator.' This is what happens when you confuse the free market with a free license to let special interests take whatever they can get, however they can get it."

We've been letting the foxes guard the hen houses for the last decade, and what we have to show for it is generally lousy growth followed by a financial system that seems to be on the verge of collapse. We've tried that strategy before, and each time it ended up either the same, or worse.

On this issue, Obama is clearly headed in the right direction, and McCain just as clearly can't be trusted to do anything but more of the same.

NOTE: The image on the left is an official image of the McCain for President campaign. The image on the right is Dorothea Lange's Migrant Mother, a photo of a Depression era migrant worker and her children. It is one of the more iconic images of that era.

Afterword: It doesn't fit in with the narrative above, so I offer this last quote from the Wikipedia as further example of the Republicans' inability to understand how to manage an economy:

Marriner S. Eccles, who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from November 1934 to February 1948, detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951)[21]:

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. [Emphasis in original.] Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.

The tax changes brought about by the Bush Administration, coupled with the sort of "tort reform" Republicans have been pushing lately, rampant deregulation, and general lack of interest in helping out the working stiffs of this country are creating this same structural problem. McCain and Gramm gave these changes their full-throated support.

People are having to choose between the basics, like food or medicine, food or heat, or housing or health care for their children. People who can't afford to buy things aren't going to drive the economy out of a recession. The Republicans, with the help of far too many Democrats, have set up these conditions.

They've had their fun. It's time for adults to be in charge again.

UPDATE: Over at his blog, Bustednuckles had this to say about the financial meltdown we're watching:

That is what is what has been bothering me, with 24 hour a day coverage of this carnage, Billions and Billions of dollars in damages and the legal and economic Tow trucks hauling off the burnt out carcasses of Financial business left and right, The New York Times, WAPO, the LA Times, pick a news source, I have yet to see anyone point a finger at ANYONE as to just who is responsible for this disaster.

Oh, there is the vague reference to this or that but I don't see any names.I call Bullshit!

Too many cretins to count. I would like to point out that when we ~really~ had a financial collapse, some of the greedy bastards who had enjoyed an un-regulated path to wealth actually volunteered to kick in some cash to prop things up. I've seen nothing like that from any of our present-day robber barons.

The point you made over at your blog about the how the conditions that caused this went largely unremarked is certainly true, SWE. People don't pay enough attention to what their congresscritters are doing, and things like this seem to inevitably result.

And yes, it does seem as though accountability and duty to one's society are also concepts past ages.